Wednesday, March 21, 2012

It's not that a gold standard won't help governments address problems, it's that it won't permit them to create a lot of them:

Federal Reserve Chairman Ben Bernanke on Tuesday took aim at proponents of the gold standard, saying that such a system handicaps the government's ability to address economic conditions.

Bernanke spoke in the first of a series of four public lectures at George Washington University that is the central bank's latest effort to counter a raft of negative public sentiment that has arisen from its handling of the financial crisis. The former Princeton economics professor delivers a second lecture on Thursday and two more next week.

"Since the gold standard determines the money supply, there is not much scope for the central bank to use monetary policy to stabilize the economy," Bernanke said. "Under a gold standard, typically the money supply goes up and interest rates go down in a period of strong economic activity - so that's the reverse of what a central bank would normally do today."

It is the reverse of what central banks do today... and given the negative consequences of what the central banks have done, one would think that was a good thing. The fact that Bernanke even feels the need to createaddress the subject is a strong indication that the solution of central bank-created money is failing. Again.

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What he means is that every central bank sees the wealth of us all as a vast untapped pool to be plundered through the issue of paper money (and the accompanying decrease in wealth to each of us). A gold standard would make this impossible.

I think we are moving toward a system where most people will use fiat currency for transactions and save in gold. However, I think that system will only last as long as the central banks can keep a lid on the fiat price of gold through paper transactions. In the meantime, I fully expect some countries (e.g. China, Russia, India, Middle Eastern oil producers, etc.) along with some banks, companies and funds that are large enough to start using gold as the reference point for transactions if not demanding physical delivery outright in payment of debts.

Then we have the growing interest of the Swiss and German peoples who would like to have the Fed return their countries' gold that it has been holding as custodian. There is growing concern that the physical gold is not there or (more likely) that an audit will reveal that it has been leased out many times over creating multiple competing ownership claims to the same bar of gold. It's no surprise that the Fed and the Treasury Dept. do everything in their power to avoid audits and accountability, possession being 9/10's of the law. Put another way, if you don't hold it, you don't really own it.

As for Bernanke, Sir Walter Scott said it best: Oh what a tangled web we weave when first we practice to deceive. Or, perhaps even more appropriately: the wicked flee when none pursueth.

The Fed doesn't need a hard gold standard like before. The Congress needs to end the taxes on gold and silver and allow them to trade as legal tender. The Treasury also needs to revalue the gold to market prices. There are two groups of people in the economy: savers and debtors. Savers want hard money, debtors easy money. There's no reason why the financial market can't have both, only today there is no hard money option because there's only one legal money: U.S. dollars. Everything else is taxed.

You don't really expect Ben to promote competition here in the homeland, do you? Even Bernanke knows that competing currencies at home here would be a nightmare for him. All of a sudden everyone would wake up realize that gas and food don't go up in price, the dollar goes down in value. It would be a great economic awakening, and nothing could save the Fed from that.

gold has been a currency for the last six thousand years...99.9% of all the gold ever mined is still here...the supply isn't controlled by central banksters...really, you couldn't ask for a better reserve currency...

> gold has been a currency for the last six thousand years...99.9% of all the > gold ever mined is still here...the supply isn't controlled by central > banksters...really, you couldn't ask for a better reserve currency...

Isn't it being used in electronics and components though? I know it's still here, but doesn't using your money supply as a consumable in industry mean that the money supply will be decreased over time?

Bernanke said the the Federal Reserve is a government agency and listed the 3 main purposes of the Federal Reserve. He did not tell the students that the Federal Reserve Bank is privately owned and exists to make its stockholders very rich.

You are missing the fact that only a small amount of gold is used in manufacturing. But if it used up more it would restrict supply which would cause the value of the remaining gold to go up, which would make using gold unnatractive and manufacturers would switch to a different metal due to the cost. A few years back nickel was on a sharp rise due to its use in manufacturing. China was a large user of that nickel but came up with an alternate composition and almost overnight the price of nickel plummetted.

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Godfrey: A commodity based currency would end the ability of the ruling elite to easily plunder the people and would alao reduce their ability to wage endless war. Thus the reason they oppose it. This is only partially true. As long as the phony money created by the usual suspects via their fractional-reserve banking scam is accepted by any country, they can use it to corner and manipulate markets, economies and (ultimately) governments - just as they did in the 19th century.

World War I represented the ultimate triumph of the slave power as it brought about the collapse of the three governments not completely under their control (Austria, Germany and Russia), and facilitated the process of the takeover and looting of economies and markets in the places ruled by governments under their control (the entente powers). Even so, a gold standard vastly reduces their control over the money supply - which is why they oppose it. The institution of a gold standard introduces a competing legal tender.

There's a line from Daylight (a largely forgettable but sometimes interesting movie) that sums up the problem quite nicely.

The survivors of an explosion are trapped in a tunnel, and one rescue attempt actually risks tearing that tunnel down around them. As floodwaters rush in, threatening to drown them, one of the survivors yells, "They're gonna save us to death!"

So yeah, Bernanke wants to reserve the right to save the economy to death.

"World War I represented the ultimate triumph of the slave power as it brought about the collapse of the three governments not completely under their control (Austria, Germany and Russia), and facilitated the process of the takeover and looting of economies and markets in the places ruled by governments under their control (the entente powers). Even so, a gold standard vastly reduces their control over the money supply - which is why they oppose it. The institution of a gold standard introduces a competing legal tender." - Gen. Kong

You are correct. The gold standard isn't perfect, it's just the best system ever designed. The problems it creates are small and can be managed in the normal ebb and flow of the economy. It's the one system that, if upheld, can contribute to long-term stability of money, economy, and society.

To the contrary, in trying to use fiat money to manage small natural dislocations, government magnifies the ultimate dislocation into a complete and utter disaster for the money, economy, and society.

The Founders took great care to separate powers. Gold was part of their calculus, removing monetary powers from the government, leaving them where they naturally reside, with the people.

Gold is a store of value. It is scarce yet in plentiful enough supply that it can be liquid (i.e. if only one ounce of gold existed in the world, it wouldn't be useful). Also, the productive uses of it are so small compared to the world's inventory that almost all of the gold ever mined is still in someone's possession (unlike silver). It's heavy and thus impossible to completely counterfeit without use of heavier/more expensive metals. In short, I believe gold is a gift from God. Pity that we don't appreciate it more. In a just world, FDR would have been shot in the face about 20 minutes after "outlawing" ownership of gold.

Whether it becomes currency again is quite another matter, however. In my opinion, it's not bloody likely--most Americans (or citizens of the world for that matter) can't even spell inflation, let alone understand how heavily they're taxed via inflation alone.

Bet on the hyper-wealthy to continue using USD until they come up with the next reserve currency (SDRs, USD-blue version, or what have you). Fiat currency/control of the populace is just too, too profitable. We may have a short period of time when gold rises spectacularly while USD wheezes its last breath (Euro probably doing that first)...but shortly thereafter, the peons will be told to believe in something new.

And they will. Look at the misery that was Weimar Germany. Did they demand a return to the gold standard after all that worthless paper printing? They did not. They were told to believe in a new Mark with a new prefix/name, and they did.

We are doomed. We've done it to ourselves. May God bless us and John Derbyshire (get well soon!) as we attempt to rebuild the US after the coming unpleasantness. And may God help us see the wisdom of using the original blueprints. instead of the new ones proferred by the usual suspects.

As the Gen. Kong quote shows the gold or any other commodity standard does not eliminate their ability to manipulate the value of the currency. It merely makes it more difficult.

Rather than thinking there is anyway to fix a monopoly currency issued by the government, it seems too me that we need to return the issue to the free market. Allow currencies to be issued and backed privately. Thoee that are properly managed will be preferred by the consumers over those that are improperly managed. The market will mitigate the effects of the abuses.

Hyperinflation is only possible with government issued monopoly currencies. Time to remove government and the flaws it brings from the equation.

I was sad about IL's primaries, not surprised just bummed. I was meaning to link to this video here or throw it on my page but Soros, Sachs and Krugman were doing a roundtable on Cspan - praising Ben's latest policies, it was stunning. One would have to be patient to watch it but dear God, these people are true believers.

Most people are NOT taxed via inflation. Because they are debtors, and therefore inflation to them seems like a pretty darn good deal.

Too bad they don't understand the concept that wages are much stickier than retail prices, or they would understand that while their tiny savings accounts are being stripped of value, their earning power is also being destroyed.

Prudent financial decisions are being punished under the Fed system of fiat and targeted inflation numbers. Therefore, most people will engage in the behavior that is being rewarded (spending like a drunken sailor) and avoid the behavior being punished (saving for the future and delayed gratification).

Ron Paul addresses your question about the gold standard fairly well:What we need is a standard. Gold has been the preference for 6000 years, and while it will probably continue, it doesn't have to. It can be whatever the market decides. Whatever it is, however, cannot be something that is produced (basically) out of thin air at will or you get, well, pretty much the economy we have today.

The spin on this is already that some "crazy Creationist student" went nuts in class. I haven't seen the video, but her statement about "hating evolution" seems like it could be taken different ways. Maybe she doesn't deny evolution, but thinks it doomed her into something inferior. Who knows. She certainly behaves more like a nutso progressive (e.g, Chris Rock attacking Mattera's camera man) than a so-called Fundamentalist.

Fiat money is great as long as the people issuing it are wholly trustworthy and incorruptible.

In the United States, fiat money has enabled politicians and big banks to perpetrate the greatest fraud in history against the American people. Most of what Americans think they own has already been stolen, but there are very few who seem understand.

There's some interesting stuff at FOFOA and no one can dispute the blatant manipulations of the POG in order to keep fiat relevant and in circulation (the central banks biggest fear is that everyone will star using gold before they get their hands on all of it, but I disagree with him over inflation. Specifically, I think deflation will catch the printers by surprise and only after that will they open the floodgates in a manner to cause hyperinflation/failure of fiat. Gold will do relatively well in both deflationary and inflationary scenarios due to it's increasing role as the money preferred for savers. Gold's role as a commodity is negligible, so I am constantly amused by mainstream economists, banksters, and financial experts trying to claim it is a commodity and nothing more. If that were so,maybe The Bernanke would be willing to exchange the Gold on the Fed's balance sheet for pork bellies...

Your understanding is flawed. Paper money is taxed, to start with. There *is* legal tender coined from gold and silver in the US. Has been since the mid-80s. Congress passed a law stating that there is no difference in the value of US minted gold and silver coin and Federal Reserve-produced clad coin and dollars. This means that you can pay a $100 fine or tax with $100 in Federal Reserve Notes, or $100 in US gold or silver coin - but if you pay with gold or silver coin, you have to pay $100 face. That's why people don't use US currency as tender - not because it's illegal, but because it's financially stupid.

When paople talk about going back to the gold standard I suppose they mean it will be represented by printed paper. There's a lot of potential for mischief there, because printed paper can be counterfeited.

I happen to know that physical gold requires a lot of human labor to find, and often, after heart-breaking effort, may not be found at all.

But very well, if you want to use gold as money, let's make it easy to use. Forget coins. Let's seal all gold into transparent credit-card-sized plastics. We can make plastics with heavier capsules of gold to represent many dollars. And we can make plastics with smudges of gold to represent pennies.

The problem is do we have the technology to confirm the gold is kosher inside those plastics?.

My problem with the gold standard is that it doesn't protect against the government changing the value of the standard. "Neither the wisest constitution nor the wisest laws will secure the liberty and happiness of a people whose manners are universally corrupt." If we have evil men in power then there is nothing stopping them from changing the peg that gold is set to.

"My problem with the gold standard is that it doesn't protect against the government changing the value of the standard..." - JMH

You are completely wrongheaded here. The precise point of a gold standard is to remove the ability of the government to manipulate the value of the standard. When using a gold standard, money is gold and gold is money. Gold is valued by weight. Governments might name a particular weight and fineness of gold, a $20 gold piece for instance, but it's the weight of the gold that drives the value, not its moniker.

When governments "change the value of the standard" what that really means is that they've removed the standard or changed its value in relation to their non-gold units. See FDR circa 1933 or one Richard Nixon in 1971. But an oz of gold remains an oz of gold no matter what the politicians do.

One thing that seems lost on some here is the simple truth that the banksta overlords and the regimes they control cannot create gold out of thin air. They can create dollars or euros or pounds with the mere press of a computer key - literally adding zeros to their accounts. A gold standard can only reduce their ability to control and loot. As long as anyone accepts their counterfeit money as payment, they can use it to acquire real assets - whether the assets consist of land, companies, or people.

One of the few legitimate purposes of government is to ensure "honest wights and measures". Counterfeiting is the very essence of dishonest weights and measures. The system in presently in place in every single western country (and even most non-western countries) is one where the counterfeiters are in complete control of the game.